But creditors can't seize all of the money in your paycheck. Different rules and legal limits determine how much of your pay can be garnished. For example, federal law limits how much judgment creditors can take. The garnishment amount is limited to 25% of your disposable earnings for that week (what's left after mandatory deductions) or the amount by which your disposable earnings for that week exceed 30 times the federal minimum hourly wage, whichever is less. (15 U.S.C. § 1673). Some states set a lower percentage limit for how much of your wages are subject to garnishment. The wage garnishment laws in Ohio are generally the same as federal wage garnishment laws. But Ohio law also protects you against garnishment if you enter into an agreement for debt scheduling; that is, you enter into an agreement with a nonprofit debt counseling service and agree to pay them a portion of your income. The service then makes payments to your creditors until your debts subject to the agreement are paid off. (See below for more information on how debt scheduling works).
The creditor will continue to garnish your wages until the debt is paid off, or you take some measure to stop the garnishment, such as claiming an exemption with the court. Your state’s exemption laws determine the amount of income you’ll be able to retain. Depending on your situation, you might be able to partially or fully keep your money. You can also potentially stop most garnishments by filing for bankruptcy.
Again, federal law places limits on wage garnishment amounts. While states are free to impose stricter limits, Ohio’s wage garnishment laws are generally the same as federal law. On a weekly basis, the garnishment can’t exceed the lesser of:
In addition, in Ohio, a wage garnishment isn’t allowed for any debt that’s the subject of a debt-scheduling agreement between the judgment debtor and a budget and debt counseling service unless:
Generally, under an agreement for debt scheduling, you regularly pay a portion of your income to a budget and debt counseling service, which makes payments to your creditors until your debts subject to the agreement are paid off.
In Ohio, “debt scheduling” means counseling and assistance provided to a consumer by a budget and debt counseling service under all of the following circumstances.
Under Ohio law, a “budget and debt counseling service” means a nonprofit corporation that counsels consumers about their financial obligations and assists them in dealing with their creditors. (Ohio Rev. Code Ann. § 2716.03.) Here are a few ways you might go about finding a nonprofit budget and debt counseling service:
Legitimate debt counseling organizations offer financial help for free or at a minimal charge. But you should avoid for-profit debt relief services. Often, the for-profit companies that purport to provide debt relief services are scammers; you’ll get little or no help after you've agreed to pay them. All too often for-profit debt relief companies charge high fees for services you could do yourself, hurt your credit, drop the ball when it comes to actually performing the services, or simply take off with your money. Even if a debt relief company does try to help you, you'll have to pay a lot for services that you could do yourself or would be better off paying to an attorney or a nonprofit budget and debt counseling service.
If you owe child support, federal student loans, or taxes, the government or creditor can garnish your wages without getting a court judgment for that purpose. The amount that can be garnished is different than it is for judgment creditors, too.
Since 1988, all court orders for child support include an automatic income withholding order. The other parent can also get a wage garnishment order from the court if you get behind in child support payments.
Federal law limits this type of wage garnishment. Up to 50% of your disposable earnings may be garnished to pay child support if you’re currently supporting a spouse or a child who isn't the subject of the order. If you aren't supporting a spouse or child, up to 60% of your earnings may be taken. An additional 5% may be taken if you're more than 12 weeks in arrears. Idaho state law follows this federal law. (15 U.S.C. § 1673). Ohio has no additional withholding limits for child support other than those that federal law prescribes. (Ohio Rev. Code Ann. § 3121.03.)
If you’re in default on a federal student loan, the U.S. Department of Education or any entity collecting for this agency can garnish up to 15% of your pay. (20 U.S.C. § 1095a(a)(1)). This kind of garnishment is called an “administrative garnishment.” But you can keep an amount that’s equivalent to 30 times the current federal minimum wage per week. (Remember, federal law protects the level of income equal to 30 times the minimum wage per week from garnishment.) (15 U.S.C. § 1673).
The federal government can garnish your wages (called a "levy") if you owe back taxes, even without a court judgment. The weekly exempt amount is based on the total of the taxpayer's standard deduction and the aggregate amount of the deductions for personal exemptions allowed the taxpayer in the taxable year in which such levy occurs. Then, this total is divided by 52. If you don’t verify the standard deduction and how many dependents you would be entitled to claim on your tax return, the IRS bases the amount exempt from levy on the standard deduction for a married person filing separately, with only one personal exemption. (26 U.S.C. § 6334(d)).
States and local governments might also be able to garnish your wages to collect unpaid state and local taxes. Talk to an Ohio debt collection attorney to learn about local and state tax garnishment.
If you have more than one garnishment, the total amount is limited to 25% (unless one of the debts allows for a higher garnishment amount, such as child support). (15 U.S.C. § 1673(a).)
If you receive a notice of a wage garnishment order, you might be able to protect or "exempt" some or all of your wages by filing an exemption claim with the court or raising an objection. The procedures you need to follow to object to a wage garnishment depend on the type of debt that the creditor is trying to collect, as well as the laws of your state.
You can also stop most garnishments by filing for bankruptcy. Your state’s exemption laws determine the amount of income you’ll be able to keep. Property exemptions apply to more than just wages. Each state has a list of exemptions that a filer can use to protect property needed to maintain a home and employment, such as furniture, clothing, and a modest car. You'll find the assets listed in each state's exemption statutes. If you own an asset that appears on the list, you can exempt it.
Complying with wage garnishment orders can be a hassle for your employer; some might prefer to terminate your employment rather than comply. Federal law provides some protection for you in this situation. Under federal law, your employer can't discharge you if you have one wage garnishment. (15 U.S.C. § 1674).
Similarly, under Ohio law, your employer can’t discharge you solely because of a wage garnishment by a single creditor in any 12-month period. (Ohio Rev. Code Ann. § 2716.05.)
This article provides an overview of Ohio’s wage garnishment laws. You can find more information on garnishment in general at the U.S. Department of Labor website. To find more about wage garnishment limits in Ohio, including the procedures that employers must follow in carrying out wage garnishment orders, check out the online Franklin County Law Library wage garnishment section.
For information specific to your situation or to get help objecting to a garnishment, contact a local debt relief attorney.
]]>However, the legislature changed the law in 2018 so lenders that make payday-type loans in Ohio must comply with the state's Short-Term Loan Law.
In 2008, Ohio enacted its Short-Term Loan Law (Ohio Rev. Code § 1321.35 and following). This law provides significant protections for borrowers.
However, because lenders could evade this law, no lenders obtained licensure under the Short-Term Loan Law from 2008 to 2018. Instead, they made loans under other laws that were less restrictive.
To get around the consumer protections the Short-Term Loan Law provided, payday lenders used to do the following:
Ohio’s Mortgage Lending Act (MLA) (Ohio Rev. Code § 1322.01 and following) places a cap on interest rates but doesn't have the other restrictions found in the Short-Term Loan Law. Payday lenders used to be able to register under the MLA and offer short-term loans with terms that would have violated the Short-Term Loan Law.
The only restriction on loans made by lenders registered under the MLA is that the interest rate is capped at 25%. (Ohio Rev. Code § 1322.30). Payday lenders got around the cap by creating Credit Service Organizations, a kind of payday loan broker.
Under Ohio law, a Credit Service Organization is an organization that, among other things, helps consumers find loans. (Ohio Rev. Code § 4712.01 and following). In the past, a borrower agreed in a standard payday lending contract to hire a Credit Service Organization to "find" the loan, and the payday lender "accepted" the borrower's payment to the Credit Service Organization.
So, when an Ohio resident got a payday loan, that person typically took out the loan from a lender that was actually registered as a mortgage lender. The interest rate on the loan wouldn't be more than 25%. However, a large fee was tacked on to the loan for payment to a Credit Service Organization.
Under the federal Truth In Lending Act, the Credit Service Organization fee must be treated as a finance charge. The promissory note described the fee as a “prepaid finance charge,” and it was added to the total interest the borrower paid on the loan. In the end, the interest rate stated on the promissory note was significantly higher than the 25% rate allowed under the MLA because of this additional fee.
The Ohio Supreme Court basically gave a seal of approval to the loophole in Ohio Neighborhood Fin., Inc. v. Scott, 139 Ohio St.3d 536, 2014-Ohio-2440. The Court held that payday lenders can also be mortgage lenders under the MLA.
Interestingly, one of the justices noted that after the passage of the Short-Term Loan Law, not a single payday lender registered as such under that law. The justice wrote:
How is this possible? How can the General Assembly set out to regulate a controversial industry and achieve absolutely nothing? Were the lobbyists smarter than the legislators? Did the legislators realize that the bill was smoke and mirrors and would accomplish nothing?
So, to address these issues, the Ohio legislature passed the Ohio Fairness in Lending Act in 2018.
Because of the Ohio Fairness in Lending Act, payday lenders in Ohio that offer loans of $1,000 or less or for a duration of one year or less can't operate under any law other than the Short-Term Loan Law.
Again, the Short-Term Loan Law, which payday lenders must now comply with, has significant protections for borrowers.
The Short-Term Loan Law prohibits lenders from giving you a short-term loan over the phone or by mail. (Ohio Rev. Code § 1321.36).
The law also prohibits a lender from making a short-term loan to a borrower if an outstanding loan exists between that borrower and any of the following:
But this prohibition doesn't apply if the loan is being refinanced. (Ohio Rev. Code § 1321.41).
The law gives the borrower the right to rescind or cancel the loan by returning the originally contracted loan amount by 5:00 p.m. of the third business day after the day the borrower enters into the loan contract. (Ohio Rev. Code § 1321.39).
After making a payday loan, the lender can contact the borrower only about specific topics, and the contact must be for the borrower's benefit. Generally, the allowed topics include upcoming payments, payment options, payment due dates, and the effect of default. (Ohio Rev. Code § 1321.41).
After default, the allowed topics include receiving payments or other actions permitted by the lender, advising the borrower of missed payments or dishonored checks, and assisting the transmittal of payments via a third-party mechanism. (Ohio Rev. Code § 1321.41).
Additional protections under the Short-Term Loan Law include:
Also, lenders are limited to charging a monthly maintenance fee of not more than 10% of the loan or $30, whichever is less (and the fee can't be added to the loan balance to which interest is charged). (Ohio Rev. Code § 1321.40).
In addition, the lender can't accept the title or registration of a vehicle, real property, physical assets, or other collateral as security for the loan. (Ohio Rev. Code § 1321.41).
The Short-Term Loan Law requires lenders who make payday loans to get a license from the state as a short-term lender. (Ohio Rev. Code § 1321.36).
Learn why you should avoid fast-cash options, such as payday loans.
Find out how you can stop automatic payments on a payday loan.
Get information about different options for getting out of debt.
If you need money fast, it's usually best to avoid payday loans. For information on how payday loans work and managing debt, get Solve Your Money Troubles: Strategies to Get Out of Debt and Stay That Way, by Amy Loftsgordon and Cara O'Neill (Nolo).
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